The market value of Fords' equity, preferred stock and debt are $8 billion, $2 billion, and $15 billion, respectively. Ford has a beta of 1.8, the market risk premium is 7%, and the risk-free rate of interest is 3%. Ford's preferred stock pays a dividend of $4.50 each year and trades at a price of $27 per share. Ford's debt trades with a yield to maturity of 9%. What is Ford's weighted average cost of capital if its tax rate is 25%? A. 11.41% B. 10.89% C. 12.45% D. 10.38%

Essentials Of Investments
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Chapter1: Investments: Background And Issues
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The market value of Fords' equity, preferred stock and debt are $8 billion, $2 billion, and $15 billion, respectively. Ford
has a beta of 1.8, the market risk premium is 7%, and the risk-free rate of interest is 3%. Ford's preferred stock pays a
dividend of $4.50 each year and trades at a price of $27 per share. Ford's debt trades with a yield to maturity of 9%.
What is Ford's weighted average cost of capital if its tax rate is 25%?
A. 11.41%
В. 10.89%
С. 12.45%
D. 10.38%
Transcribed Image Text:The market value of Fords' equity, preferred stock and debt are $8 billion, $2 billion, and $15 billion, respectively. Ford has a beta of 1.8, the market risk premium is 7%, and the risk-free rate of interest is 3%. Ford's preferred stock pays a dividend of $4.50 each year and trades at a price of $27 per share. Ford's debt trades with a yield to maturity of 9%. What is Ford's weighted average cost of capital if its tax rate is 25%? A. 11.41% В. 10.89% С. 12.45% D. 10.38%
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